Chip maker Advanced Micro Devices has spent 2017 steadily rolling out new products that offered impressive performance for personal computers, servers, and cloud data centers. In the third quarter, that translated into overall revenue growth of 26% and net income of $71 million—the first real profits since 2014.
But Wall Street was not impressed with those financial results released on Tuesday. AMD’s (AMD) stock price, which had gained 26% so far this year, plunged as much as 12% in after-hours trading.
The plunge happened even though $1.6 billion in sales was more than the $1.5 billion analysts had expected, and adjusted earnings per share of 10 cents beat the average forecast of 8 cents. The $71 million of net income was the first since the middle of 2016—but that was related to the sale of some manufacturing facilities. The previous net profit was way back in the third quarter of 2014.
The problem is matching the story of growing interest in AMD’s new Ryzen chips for PCs, Epyc chips for servers, and Vega chips for graphics and AI processing with a few unusual items in the latest quarterly report.
One issue was a patent licensing deal that AMD says it struck. The company didn’t give many details, saying only that the patents dealt with both central processors and graphics processors, but without saying how much money it made on the arrangement. In January, AMD filed patent infringement complaints against LG, MediaTek, Sigma Designs, and Vizio but wouldn’t say on Tuesday whether the new deal related to any of those companies.
With the impact of the patent deal buried in unknown ways in the quarterly results, analysts and investors worried that AMD’s new products weren’t selling as well as hoped. The patent revenue, which won’t recur, could have covered slower than expected sales. Bernstein Research analyst Stacy Rasgon says the mystery patent gains led to “speculation they might have missed without it” as well as concern, despite all the new products, that earnings have still not hit an “inflection” point that would power profits considerably higher. The company slightly raised its forecast for fourth quarter revenue but said its gross profit margin would remain steady.
AMD CEO Lisa Su tells Fortune, however, that the company had a very strong quarter on the basis of its new products. “When I take a step back and I look at the progress, all of the revenue growth is really on the strength of the product portfolio,” Su says. “There’s always a little of looking at what happens in one quarter versus the next, but if we take a step back, we see we’re returning to very strong growth.”
Su won’t say much about the patent licensing deal, but promises that more such intellectual property, or IP, agreements will be coming. “It’s hard to predict—I won’t tell you it will be this much this quarter, this much next quarter,” she says. Additional “opportunistic IP licensing deals” will provide upside to the revenue and profit growth from the Ryzen and Vega lines, Su says.
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Whatever Wall Street thinks of the third quarter, AMD is about to launch perhaps its most competitive product yet in the current quarter. New chips for laptops will combine AMD’s Ryzen line of processors with its Vega graphics design on the same chip, boosting performance while saving battery power. Intel (INTC) is strong on processors and Nvidia (NVDA) reigns in graphics, but neither competitor can offer the combined strong performance in both areas, Su notes. Acer, HP and Lenovo plan to have devices out this year with the new combo AMD chips.
“I get a lot of tweets asking me for Ryzen mobile products,” Su says. “I think it has even broader appeal than some of the high-end desktop products that we launched earlier this year.”